Keki Mistry, the mortgage lender's VC and CEO, says the valuation of HDFC Standard Life will be high. Also, expect lending rates to go down by a few basis points.
HDFC Standard Life, the insurance arm of HDFC, is looking at an initial share sale sometime around the end of this calendar year, confirms Keki Mistry, Vice Chairman and Chief Executive Officer of the mortgage lender.
Speaking to CNBC-TV18, he said approvals from Insurance Regulatory and Development Authority of India (IRDA) and SEBI are pending for the IPO.
A more optimistic timeline for the IPO, he believes, would be November-December.
HDFC Standard will be India’s first standalone issue in insurance. The mortgage lender will be diluting 10 percent equity in its insurance business.
This month, HDFC had completed its stake sale of 9 percent in the insurance unit to its UK joint venture partner Standard Life for a little over Rs 1,700 crore.
Mistry confirms the valuation for the insurance unit will be high, adding that various analyst reports put the figure at around Rs 23,000-24,000 crore.
HDFC will look to cut its lending rates by a few basis points, says Mistry.
Below is the verbatim transcript of Keki Mistry's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: When should be expect the 10 percent stake sale in your insurance venture?
A: We always wanted to do an initial public offering (IPO). We have talked about it several times but there were reasons why it was not done. First, the foreign ownership limits were capped at 26 percent. Then the Standard Life transaction has to be completed. So, now all that is behind us given that we are looking at filing for an IPO. The process is just about to start but before we start anytime we need in-principal approval of the board.
Sonia: If you had to put a timeline, a ballpark estimate, should we expect something in this calendar year itself?
A: I would hope it would be in the latter part of the calendar year because the process as we see it now, would involve preparing the offering document, a lot of work has already gone into it but the actual document has to be prepared. We have to get the bankers on board, we have to get the lawyers on board then we will file with the Insurance Regulatory and Development Authority (IRDA) since this could be a specific insurance issue, one of the first insurance issue. I guess there will be a lot of scrutiny on the documents, on the disclosure and so on because this then sets a path for other IPOs in future. After we get the IRDA approval we also need the Sebi approval because it is an IPO and after both these processes are over we would look to an IPO. So I would say October-November-December is probably the best that we can hope for the IPO.
Latha: If we look at your last sale to Standard Life, your valuations for the company work out to about Rs 18,944 crore. Considering exactly what you say that this is the only play investors have, is it likely that it will list at a premium to this?
A: I would certainly hope that it would be premium to this for two-three reasons. One, the Standard Life transaction was negotiated or discussed sometime in February-March after the foreign ownership limits were open. It is just that the transaction got completed now because it had to go through all the regulatory processes. Second, Standard Life's promoter along with us, so they always had right to increase their stake to 49 percent and certainly more importantly they gave up 14 percent of the option. So they had an option to go to 49 percent and they restricted their shareholding to 35 percent because both of us wanted to do an IPO. So I would say because of time and because of reasons the valuation would be higher. How much higher, I won't be able to comment on because we need to discuss this with bankers but if you look at some of the sell side analyst reports, if that is any indication to what the value is, the value should be higher
Latha: How much is it. I didn't real the sale side analyst report?
A: There are so many analyst reports. We have 76 analysts who cover HDFC, so it's very difficult but those who do standalone valuation, most of them would be upwards of 23,000-25,000.
Latha: A question on your interest rate. Since we last spoke, there has been a seminal fall in market rates and you guys normally follow the market rates. So should we expect that there must be lending rate cuts as well?
A: The total cost of funding has to come down. It is not just funding from one source.
Latha: But it has come down?
A: It has come down in the last 15 or 20 days but at the same time in February-March it inched up, so it is certainly lower than what it was in February-March but it's not significantly lower compared to what it was in December. So yes, over a period of time few rate cut is possible but we have to let that lower interest rate percolate into the overall funding cost before we look at a significant change.
Sonia: A view on HDFC Standard Life, the business because we have the Q4 numbers as well. Net profit growth of about 9 percent, assets under management (AUM) have grown about 11 percent odd or so. What is the expectation going ahead? Is this 11 percent growth something that you would expect to do in the next year as well?
A: I cannot comment on future growth of the insurance company but the outlook seems to be good, but all these are details which will be indicated in the offering document and obviously we need to all put together and work through that offering document, but the outlook looks good, the margins have gone up this year compared to the last year. The previous year margins were higher than the year before. You need to look at the margins. The new business margin numbers that we reported has generally been much higher than what you generally see in the market.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.